Effects of EPA on SACU

With disparate positions to the Economic Partnership Agreement (EPA) negotiations, there are fears that this could mean the end of the Southern African Customs Union (SACU). New Era spoke to SACU Executive Secretary, Tswelopele Moremi, and Director: Policy Development & Research, Anton Faul, to find out more.

By Catherine Sasman

New Era: At the end of last year Botswana, Namibia, Lesotho and Swaziland (BNLS countries) initialled an Interim Economic Partnership Agreement (IEPA) with the European Union (EU). South Africa decided against the initialling of an IEPA. This has placed the integrity of the Southern African Customs Union (SACU) under pressure and given rise to speculation of a break-up of the oldest customs union. Could you comment on these developments?

Moremi: I think it is fair to say that the fact that different SACU member States reached different decisions was contrary to our own expectations because within the context of the SACU agreement we have been approaching negotiations with third parties as a block. But we do not expect that that development will lead to a breakdown of SACU. In fact, this was a matter that was discussed at the council meeting in December, where council resolved that, yes there were setbacks, but it is important that we should now regroup with the view to continue with our traditional approach as provided for in the SACU agreement. Right now we are dealing with these issues. Trade ministers have met at least twice since the beginning of this year under the instruction of the SACU Council of Ministers. As far as we are concerned, this will not necessarily lead to the break-up of SACU. I think it is important to understand that first of all, SACU has got its own agreement. Within the context of the SADC EPA, those differences cannot automatically lead to a SACU breakdown. For that to happen, fundamentally, member States would have to consider all the implications of the SACU agreement itself. It was also not the most ideal situation in the past. But we have learnt to live side by side with agreements that were entered into – like the TDCA [Trade, Development and Cooperation Agreement between South Africa and the EU] – but that did not break SACU. In our view, SACU has actually withstood so many other challenges. It was taxing on SACU, I agree, but I think there is a commitment to address those issues that made member States take those positions. For those member States that tried, their market access in the EU was going to come out on December 31. There was a lot of concern about what would happen after December 31 if countries were not able to reach this agreement, and therefore what would happen to their market access in the EU.

So, for the moment there is no undue pressure on SACU?

Moremi: There is pressure on SACU but that comes from within SACU itself to make sure that these issues are being addressed. There is no pressure from outside. There is recognition within SACU – even at the last council meeting – that we need to address and create the necessary conditions to ensure our cohesion and integrity as a customs union, and maintain that integrity as a customs union. This is the mandate and everyone understands to work towards that.

Faul: Trade negotiations in general are pressured situations because you have to compromise. If you do that as a group the pressure is even more. If you consider how long the WTO [World Trade Organisation] negotiations has been on the table, there is no way of knowing how long it will take to get to the point where a conclusion will be reached. But it there is not pressure; one would not know how far integration has been achieved. I think this pressure is bringing different parties closer. They know they have a duty towards their citizens. Member States are more willing to engage. They meet more often and they know they have to think carefully about they are dealing with.

Moremi: To add to that, in fact this was a particular setback. But if you look back at the way SACU has operated in terms of its relationship with third parties especially in trade negotiations, SACU has done very well over the last couple of years. We currently have a team in Buenos Aires in Argentina to finalise a trade agreement between SACU and the MESO group of countries, which we hoped would have been concluded by the end of last week. SACU has started preferential trade negotiations with India, which is being led by Namibia. We have concluded a cooperation framework with the USA that we hope will be signed very soon. From next month we will be implementing a FTA [free trade agreement] between SACU and Norway, Switzerland, Lichtenstein and Iceland.

The EPA negotiations in 2007 only commenced in March last year after the EU responded to the SADC EPA strategic framework proposals and ended with the initialling of a goods-only IEPA. Do you think the SACU Member States are equipped to negotiate a full EPA, including services and other new generation issues by the end of 2008?

Moremi: The decision lies with the SACU Member States but as a secretariat understands there is at least a commitment by the member States to forward towards a full EPA by the end of 2008.

Faul: We have raised our concerns and the EU has agreed that those can still be addressed. Of course, in the end the negotiations will show whether the EU has considered our concerns, and vice versa. They also stand to lose because they also want market access to our markets. It is always a give and take situation. One might think that there is more leeway on the new generation issues on the one hand, but that on goods the other party might get the benefit. That is how it goes. But the commitment is that all member States want to get on board. Trade Ministers that have met at SACU level, not SADC level, with the European Commission have agreed on a roadmap with schedules. They are confident that they will conclude negotiations by the end of the year.

Moremi: As far as the new generation issues are concerned, yes, the SACU agreement is about trade in goods only, but we have in past negotiations been able to develop a common approach as SACU even though the agreement does not cover those issues. I am raising this to illustrate that whilst we have no formal position to engage in those collectively as SACU, we understand that in any future negotiations there is increasing pressure to include new generation issues. Indeed, these are issues that have been placed before the council.

If at the end of 2008 the same scenario prevails where BNLS countries have signed the full EPA with EU excluding South Africa, what would the effect be on SACU?

Moremi: Right from the beginning, when we started the negotiations with the EU, our intention was to streamline trade relations between SACU and the EU. That was the overall objective. Because we have to TDCA on the other hand but we wanted to make sure that we can bring South Africa on board so that on the trade side at least we have one trade regime. Right now I think there is still hope that there will be enough commitment and willingness to resolve the outstanding obstacles, in negotiations amongst SACU Member states to enable them to collectively face the EU. I also think there is a desire from South Africa to be included in the negotiations.

Namibia has initialled the IEPA contingent on the fact that a list of unresolved issues encountered in 2007 would be re-opened for negotiation. Do you think these issues are relevant in terms of SACU? If so, why did Botswana, Lesotho and Swaziland initial the IEPA without these concerns?

Moremi: South Africa and Namibia submitted a list of their concerns at the SACU Trade Ministers meeting. There it has been decided that the senior officials should study these concerns and begin to determine which concerns could have implications for SACU. This is a process that is currently ongoing. The senior officials still have to give a final report to the trade ministers. This can be towards the middle of May or towards the end of next month.

The SACU 2002 agreement still lacks finalisation. For example, Article 41 on Unfair Trade Practices is on the drawing board now for more than four years without a resolution. There is still no harmonisation between the agricultural policy for SACU (Article 39) and no common industrial development policy (Article 39). Do you not think that international developments have overtaken the slow pace to finalise the 2002 SACU Agreement and that this has contributed to the differences between the member States in the EPA negotiations?

Moremi: You are right that there has not been a full implementation of the SACU agreement. But it has only been three-and-a-half years that the new agreement has been in place. The new agreement is a fundamental departure from the previous one. It is a major transformation and provides for deeper integration amongst the five member States. Under the previous agreement, there were meetings once or twice a year where member States met to share the SACU revenue and then would go their own way. The new agreement provides for democratic institutions to be set up. There has been some progress despite the fact that this new arrangement is still in its infancy. Previously, individual states were only looking at their own national interests. There was nothing they saw as common because it was then only about revenue sharing. The new arrangement provides for much more engagement of stakeholders. This is something member States have begun to understand; there is a need to look beyond their own national interests for the broader interest for deeper integration. This is a matter that was much debated at the last Ministers’ Council. The council has resolved that the task team should meet – which is at the Permanent Secretary level – to address issues such as how best to consolidate the institutions with a view to make SACU realise its own objectives.

Faul: Has the fact that the non-implementation of the full SACU agreement contributed to the differences between member States in the EPA negotiations? One would have to look at the realities on the ground. Member States had to weigh the costs and benefits, recognising that it is still an interim agreement. There was tremendous time pressure as well; it is a do or die situation for member States. It was in their interest to sign the initial EPA because it safeguarded their market access. And even if they were not ready, at some point they had to make a decision because the negotiations were still ongoing. And yes, it was about striking a compromise. South Africa did not have much to lose because they already have a TDCA, while the other countries do not have that. Namibia had to initial the interim agreement, but it does not mean that that is final. Some concerns are national because the countries are all different, but in the end those that have initialed recognised the concerns affecting SACU and SADC for that matter. SADC is in an even worse position because a lot of the members have signed elsewhere. It is not something we can resolve amongst SACU states; we have a third party that does not recognise South Africa at the same level as the other SACU countries. They don’t want to give the same market access to South Africa as to the other four. That is where the problem started.

Moremi: For a long time it was only the issue of negotiating for December 31 last year. It was only in the middle of last year that it became clear that countries would not be ready to sign a full EPA. But the point I want to make is that since a decision was taken to implement the 2002 SACU Agreement in 2004, SACU has done very well to negotiate as a block, harmonise our own positions, and so on. But SACU finds itself within a broader framework; that is where the complications come in. The fundamental problems regarding the implications of EPA are much deeper and affect SADC in a very fundamental manner in the sense that we have some SADC Member States negotiating under SADC EPA, and others negotiate under Eastern and Southern African EPA.

What is the SACU Secretariat doing to address the problem of lack of a common negotiating mechanism between member States?

Faul: Article 31 of the SACU Agreement deals with the common negotiating mechanism. We have already drafted a common negotiating mechanism after a lot of consultation with member States. This draft has already gone to some of the technical institutions where it was approved. The senior official level has also approved it. It is now before the trade ministers. They will be considering it at the next meeting, after which it will go to the council. The process is quite advanced. If the ministers agree to it, it can be implemented.

Moremi: We have adopted a common approach for negotiations with third parties. We have people out there who are negotiating on behalf of SACU. In the secretariat it is important because then we can begin to build capacity.